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Euro-area finance chiefs brace for fresh fight over budget

Euro-area finance chiefs brace for fresh fight over budget

by bloomberg 2 min. 09.10.2019 From our online archive
It would create a pot of €20 billion to facilitate investments and help give a boost to poorer nations
French president Emmanuel Macron (R) Photo: AFP
French president Emmanuel Macron (R) Photo: AFP

Euro-area finance ministers will debate the final key elements of a small budget for their currency bloc, as the region seeks to cap two years of difficult negotiations over a tool that falls far short of the original sweeping vision of French president Emmanuel Macron.

The discussion on the budget, whose broad outlines were already agreed in June, will seek to bring to a conclusion difficult talks that pitted the fiscal restraint of the EU’s hawkish North against the South’s calls for spending to stimulate the economy.

But entrenched differences over aspects of how this pot of money will be financed may mean an accord remains elusive.

The agreed budget would create a pot of about €20 billion to facilitate investments and reforms and help give a boost to poorer nations, rather than help support economies in a downturn, as was initially intended.

These funds, which would be part of the EU’s broader budget and distributed over seven years, will be used to help countries see through investments and reforms and help poorer nations catch up.

Proponents argue that the pared-down budget could still be a foot in the door that could evolve into something more powerful in times of crisis. Sceptics of the plan say it’s a toothless tool that could nonetheless help incentivise laggards to reform.

Stumbling blocks

A key issue ministers will debate is whether the instrument can be financed entirely from the EU’s broader budget, paid in by all the bloc’s 28 governments, or whether it could be topped up by other funding sources in the future.

Countries led by France have been pushing for a deal that would allow funds to be added through further contributions. The Dutch and other fiscal hawks have pushed for it to be funded exclusively from the EU’s budget, a restriction that would limit its total size.

A compromise could include a so-called “enabling clause', which would pave the way for countries that wish to top up the budget to do so in the future. But the Dutch have insisted that this would only be on a voluntary basis, a red flag for other members.

The other main issue to be discussed involves the details of the so-called co-financing rate, which determines how much money governments will receive from this budget for a project and how much they have to put up themselves.

This contribution could vary depending on the member’s economic situation, being reduced during a downturn.

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